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Directors and key employees play a pivotal role in the success of any organisation. Their strategic vision, decision-making and leadership skills drive the company forward.
One critical consideration for businesses is ensuring financial stability in the face of unforeseen challenges, particularly when it comes to prolonged absences due to illness or injury.
This blog delves into the significance of Executive Income Protection, posing the crucial question: Can you afford to continue paying your director and key employees for an extended period, or worse, if they can never return to work? Or what if you’re the director of your company and discover yourself unable to fulfill your work duties?
What is Executive Income Protection?
Executive Income Protection is a financial safeguard that allows employers to guarantee their key employees and company directors’ income security in the event of incapacity to work due to illness or injury for a specific period.
What’s the difference between personal income protection and executive income protection?
Executive income protection is similar to Personal Income Protection. But the main difference between them is that executive income protection is funded by your employer (or your company if you’re a director).
How does Executive Income Protection work?
Executive Income Protection is owned by the employer and taken out on behalf of employees.
The employer covers the premiums, which could qualify for tax deductions as a business expense.
If the employee can’t work due to illness or injury, an income protection benefit will be provided to the employer after an agreed amount of time. The employer has the option to use this benefit to maintain the employee’s salary.
Payments are made until the worker recovers enough to return to work or until the policy expires.
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Executive Income Protection Benefits for Employers
- Safeguards a substantial portion of income for chosen employees, including directors.
- Enables effective management of sick leave costs.
- Enhances employee loyalty.
- Can cover the costs of employer pension contributions.
- Policy premiums may qualify as deductible business expenses for tax purposes.
Executive Income Protection Benefits for Employees
- If they cannot work due to illness or injury, a substantial portion of their income may be covered, alleviating additional financial concerns.
- The Income Protection benefit continues until the specified expiry age outlined in the policy if they are unable to return to work.
- The employer fully covers the cost of the policy.
- Access to additional benefits such as Royal London Helping Hand or Aviva Care.
How long should an Executive Income Protection policy last?
When taking out the policy, you have the flexibility to select the expiry age that aligns with your business needs. This is when your employee’s cover will end, and you can opt for any age between 55 and 70.
Selecting an expiry age that coincides with the average employee’s retirement age is a frequent practice.
Make sure it works for your business by talking to one of our financial advisors, especially because some occupations have earlier expiration ages.
Protect Pension Contributions
You also have the option to include coverage for employer contributions to the employee’s approved pension scheme.
The maximum allowable protection for employer pension contributions is 35% of earnings, with a maximum limit of €50,000. Providing evidence of these contributions may be necessary.
If you make an insurance claim, the insurance company will directly pay your benefit to you, deducting applicable taxes, USC, and any other relevant deductions.
Get your Executive Income Protection with True Wealth
Don’t leave the well-being of your key employees to chance—partner with True Wealth and safeguard their financial stability today.
Our comprehensive plan offers financial security for both employers and employees, ensuring a steady income in the face of unforeseen illness or injury.
Additionally, read our article, Can Your Business Afford to Lose a Key Person?
Gain in-depth knowledge by exploring our article, A Guide for Business Owners on Protecting, Extracting, and Growing Wealth in Ireland.
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All our content has been written or overseen by a qualified financial advisor. However, you should always seek individual financial advice for your unique circumstances.